Pump.fun, a rapidly growing platform for launching and trading meme tokens, is developing its own automated market maker . This strategic move aims to shift liquidity from Raydium’s pools to Pump.fun’s proprietary system, potentially increasing revenue and offering enhanced rewards to token holders.
Since its inception in January 2024, Pump.fun has enabled users to create and trade meme tokens on the Solana blockchain with minimal initial liquidity. The platform’s user-friendly interface and low entry barriers have attracted a substantial user base, leading to significant daily trading volumes. Currently, external market transactions on Pump.fun rely on Raydium’s liquidity pools, incurring a 0.25% transaction fee per trade. Of this fee, 0.22% is allocated to Raydium’s liquidity providers, and 0.03% supports $RAY token buybacks and ecosystem development. For instance, with a daily trading volume of $100 million, approximately $5 million is routed through Raydium, resulting in daily fees of $12,500 paid by Pump.fun to Raydium, amounting to about $4.56 million annually.
By establishing its own AMM, Pump.fun seeks to internalize these fees, thereby enhancing its revenue stream. Assuming the same trading volume and fee structure, the platform could retain the entire $12,500 daily, or $4.56 million annually, without distributing a portion to external liquidity providers. This development not only promises financial benefits but also grants Pump.fun greater control over its ecosystem, enabling the introduction of additional decentralized finance products such as perpetual contracts and lending protocols. This strategic shift aims to create a self-sustaining on-chain meme DeFi ecosystem, reducing dependence on external platforms.
The announcement of Pump.fun’s AMM initiative has already impacted the market. Raydium’s native token, $RAY, experienced a sharp decline, with a daily drop of 20%, reflecting investor concerns over potential liquidity migration and reduced fee income for Raydium. Conversely, Crack, a meme token used to test Pump.fun’s new liquidity pool, saw its market capitalization surge to $4 million, indicating positive reception from the community.
However, this transition presents challenges. Migrating liquidity from Raydium to Pump.fun’s AMM requires careful coordination to ensure stability and user trust. Additionally, operating an independent AMM necessitates robust infrastructure and security measures to prevent vulnerabilities and maintain seamless trading experiences.
